Hacks & Feds & Ghosts - Oh My!
Just when the recovery from the Feb. 6th lows seemed to be in full swing and - dare we say it? - the uptrend resuming - Bada-Bing, Bada-Bang, Bada-Boom! the crypto markets were smacked down with a barrage of sucker punches leaving it reeling and struggling to hang onto the gains of the past 6 weeks.
The Ghost of Mt. Gox
Remember the Mt. Gox hack? Where thieves stole private keys being held by Japan's largest bitcoin exchange and transferred several hundred million dollars' worth of bitcoin into their own wallets over a period of several years?
The ghost of the now defunct exchange is still haunting the crypto markets today as the trustee has a reported $1.7 billion worth of bitcoin to unload.
The selloff started last week, and reports that it will continue on exchanges, rather than the more measured, rational approach of handling the liquidation as an over-the-counter transaction or an auction, predictably led to panic - and the price of bitcoin plunged from $11,500 on March 5th to a low of $8,300 in less than 72 hours. The other large-cap coins followed, with ethereum taking a nosedive from $865 to $650.
Anyone who listened to SEC chairman Jay Clayton in the Senate hearing last month heard a pretty clear message: that SEC is primarily focused on regulatory compliance regarding the classification of tokens as securities. He repeated this several times, including in his "regulatory crosshairs" comment.
Clayton seemed to leave many of the trading issues to CFTC, whose chairman, Chris Giancarlo, seemed a lot more inclined to see where self-regulation of trading would lead.
Regulators' positions seemed to remain consistent when the SEC issued subpoenas to ICOs, rumored to be focused on the SAFT (simple agreement for future tokens), analogous to the equity agreement used in venture capital to sell access to future equity to accredited investors as a way to fund development. At issue is whether speculation on the value of those tokens (or promise of tokens) makes them securities.
Taking Aim At Crypto Trading?
The market was already in panic mode, so when SEC put out a simple statement warning investors that in order to be protected by federal securities laws they should stick to exchanges that are registered with the SEC, the overblown fear that those crosshairs might be aimed at exchanges and trading drove the markets down further.
Here's a clever caper: Instead of trying to hack an exchange, go phishing for a bunch of API keys that enable access to trading bots and pull off a massive pump - then dump and run.
That's almost what happened last week on Binance when the malefactors drove the price of viacoin all the way up from $3 to $200, but since the bots only have trading privileges and lack withdrawal privileges, the illicit trades were reversed and the crooks actually lost money. This time at least, crime didn't pay.
New Breed Of Hack
This is a new breed of hack. Binance's security wasn't compromised and private keys weren't stolen. Instead, the thieves exploited the vulnerability of users who set up API keys and enabled trading bots to use them. Those who had never used the API key had their login details compromised by being tricked to login to a bogus site with a nearly identical URL and then redirected, so they were none the wiser.
Know Your URL
Never click a link to login to your exchange, know your URL like you know your own name and make it a habit to check it before you login, and use 2-factor authentication. You should also think twice before enabling a trading bot to trade for you.
Japan's Exchange Security Jitters
Reuters reported last week that FSA inspections of exchanges had led to two suspensions and five business improvement orders. Under any other circumstances this action might have been interpreted as positive news, considering the fact that 5 of the 7 affected exchanges are "quasi-operators", meaning their FSA registrations are pending review. Cryptocurrency regulation is, after all, in its infancy.
Nonetheless, amidst the tsunami of negativity already engulfing the crypto markets, most of the media was already in panic mode and they interpreted the FSA findings as indicative of more exchange dysfunction which will lead to further hacks and regulatory crackdowns. So it was no surprise that the news drove prices even lower.
Images via Shutterstock, Charts via Coinigy, TradingView